China, a boom with feet of clay

All bourgeois economists are terrified by the catastrophic consequences which may be produced by SARS (the so-called severe acute respiratory syndrome) in the Chinese economy and the consequences on an international level. Will the astonishing Chinese economic development succeed in overcoming the panic of recent months or will it decline, dragging the entire world economy into the vortex of another recession? The doubts which afflict bourgeois economists throw us violently back into the Middle Ages, when a simple epidemic was enough to precipitously lower the standard of living of millions of human beings, simultaneously showing to what extent the much-praised Chinese development is more the fruit of particular conditions in the world economy rather than of an endogenous process. The proclamations of bourgeois ideologues that announced the globalisation of capital as the final elimination of cyclic crises, guaranteeing humanity prosperity and peace, seem light years away. None of these promises have been honoured, in fact, recent times have experienced a war per year and the data which refer to world economic health have all been negative. From the first Gulf War of 1991, fought under the flag of the UN by all the world powers against the Iraqi regime of Saddam Hussein, to the Second Gulf War of March 2003, in which the British and Americans occupied Iraq, humanity has experienced other import conflicts such as those in Kosovo and Afghanistan, without counting the war in Somalia and the myriad low-intensity wars which have transformed parts of Asia and Africa into permanent theatres of war. If capitalism has not succeeded in guaranteeing peace, the globalisation of capital has succeeded in only spreading hunger and misery, and in full measure. In the '90's, under the pressure of the crisis, entire continents collapsed economically. Without reciting the full list of countries hit by extremely serious economic and financial crises, it is enough to remember the examples of the Mexican crisis of 1995, that of the "Asian tigers" of 1997 and, finally, that of Argentina last year. These are economic crises whose effects on the social level have been devastating, tipping millions of proletarians into the deepest hunger, determining a leap backwards of at least fifty years in the quality of life.

The effects of the crisis of capital have not remained restricted to the countries of the periphery, but have also made their nefarious effects felt in the very centres of imperialism. If Argentina and Turkey have collapsed, Japan is not succeeding in emerging from a crisis which has dragged on for 12 years; and Europe itself, despite the birth of the euro, is living on the edge of a recession; in fact, the growth of GNP in the countries of the European Union is very close to zero. But what is giving the greatest cause for concern is the grave crisis which has the US within its clutches, the most serious recession since World War II. The state of the US economy is so serious that 12 successive cuts in interest rates have not been sufficient to re-launch the American locomotive. If the traditional measures of political economy cannot cause the re-emergence of the asthmatic US productive machinery, the last card that the American bourgeoisie can play is that of imperialist aggression. This is the source of the impressive programme for military rearmament, and the unleashing of a war a year in any part of the planet, but the latest official figures on the state of the economy demonstrate that not even these measures are sufficient to make the GNP grow by even half a percent.

In such an international context marked by recession, the only country which seems immune from the crisis is China which last year saw its GNP grow by 7-8%. An impressive rate of growth which throws it into the circle of great economic powers of the future. If we take into account the dimensions of the Chinese state with a population of 1.3bn, we can see the role that the yellow giant can play. But, behind the propaganda of numbers there are hidden extremely serious social contradictions which could cause the whole of Chinese society to collapse under their weight. Social contradictions which are the fruit of an inevitably unequal capitalist development which, on the one hand, generates forms of enrichment without precedent, and, on the other, swathes of poverty across broad areas of the country.

The evolution of the Chinese economy

With the end of the Mao regime, China turned towards a new phase marked by a radical break with the past. Once the mystification of a Chinese road to socialism had fallen under the blows of an extremely serious economic crisis, the Chinese economy opened its gates to the international economy over the last 25 years. Mao's long march unified China and was painted by Stalinist and Maoist propaganda as the second Communist revolution of the twentieth century, after that of 1917 in Russia, but had exhausted its historic mission under the pressure of the serious economic crisis which hit the country after the Second World War. The collapse of agricultural and industrial production, the bureaucratisation of the most elementary decision-making processes and the complete invasion of the party into every sphere of society imposed on the Chinese bourgeoisie the task of making a 180 degree turn with respect to the past. The tragic deeds of Tienamen Square and the following repression of opposition were the latest and most obvious examples of the crisis in Chinese society. A literally starving agricultural and urban proletariat challenged police repression and manifested its own dissension against the continuation of the policy of sacrifices imposed by the regime.

At the start of the '80's, the historical turn arrived: from the Chinese road to socialism one suddenly went over to marker socialism, that is, from one mystification to another, but with significant changes in the political economy and, above all, in relations with the rest of the world. The "open door" policy, inaugurated by Deng, had the objective of encouraging international economic relations, ideologically overcoming the Maoist conception of self-sufficiency and concerns about internal interference by international investors. Such a policy was concretely manifested by the opening of China to external commerce, to direct external investment and to international loans. Favouring and encouraging the opening to the outside world was the creation of the experimental zones for the free market, the so-called experimental economic zones (EEZ's), within which external investments enjoy particular protection. The creation of the EEZ's occurred in the South of the country, in particular in Guandon and Fujian provinces. Especially in the early '80's, it was very favourable for international investors to invest in the EEZ's, in which there was an exemption from industrial and commercial taxes, and from custom duties on exports and for goods received in exchange; the estimated levy on revenue was very favourable, being 10% on enterprises with external participation employed in production for export, and 15% for the rest. All these advantages have been reduced over the years, although international investors have complete autonomy in their management decisions and the division of profits and resources. The open door policy has enormously favoured the afflux of direct external investments towards China. In little more than 20 years, from 1978 to 1999, there has been the confluence of about a third of the total external investment of the entire world in the celestial empire, amounting to an annual rate of $40bn (1). The open door policy, as well as favouring direct external investment, has also determined an unprecedented development in commerce with the outside world. From the middle of the '90's, China has registered a constantly growing commercial surplus, which, in the course of 2002, was equal to $45bn.

The opening of the Chinese economy to international markets, as well as favouring the arrival of investment from abroad and encouraging external commerce, has profoundly transformed the country, causing it to make a notable leap forward in industrialisation. In the last twenty years, the Popular Republic of China has had a mean annual growth of 9%, and, according to the World Bank, by 2010 its economy could overtake that of America, becoming the largest in the World. If it is true that the rhythm of Chinese development has no equal in the developed world, it is necessary to make a brief examination of the reality to avoid falling into the trap of the propaganda of the international bourgeoisie which intends the transformation of China into the new Mecca of world capitalism. So as to avoid falling into the easy enthusiasm of bourgeois ideologues and put the Chinese economic boom in its proper place, it is necessary to start from the dimensions of the Chinese economy within the international context. Now, in 2001, the Chinese GNP was $1179.9mn, while those of the US and the European Union were almost ten times larger, exceeding $10bn in both the US and the euro area. Countries like China, which start with a very low level of production can much more easily achieve a notable growth in GNP, while obtaining similar rates is outside the grasp of countries where capitalism is mature. The historical experience of the last thirty years shows that the cyclical crisis which opened in the early '70's imposed on capitalism rhythms of growth much lower than those of the '50's and '60's, a period when the economic cycle was experiencing its ascendant phase. If we instead consider the pro capita revenue we can easily understand from what low level China is at with respect to countries like Japan, the USA and Germany. If we divide the Chinese GNP by a population of 1.3bn we obtain a very low pro capita figure which does not stand comparison with even the poorest European country. Because of this, the projections of the World Bank make no difference, as they do not take account of the differing productive bases from which China and the USA start.

Privatisation of the economy and growth in unemployment

Since Deng's time and the market socialism formula, one of the objectives of the Chinese regime is that of launching a radical privatisation of the economy. Such a process is linked to the opening of the Chinese economy to the rest of the world and to the consequent influx of foreign capital. Despite the passage to free-market socialism the reform of state concerns is finding it hard to take off because of the social difficulties that such a project causes. Some facts may help us to understand the problem. The latest figures, referring to 2001, tell us that in China, twenty years after the first privatisation was launched, there are still a good 118 000 state enterprises, the majority of which operate at a loss and at a level of competitivity lower than that of non-state enterprises and of those which take advantage of foreign investment. The state firms taken as a whole produce a third of the GNP, while they absorb more than two thirds of Chinese labour-power. If we consider only the industrial sector, we see that state enterprises produce 27% of the national industrial product, while they employ 70% of the workers in the sector. (4) Given the low competivity of state enterprises, the government has estimated that the re-structuring of the industrial apparatus would make more than a third of the workers employed in these enterprises superfluous. The accumulated losses of state enterprises have increased exponentially over recent years, going from 55bn yuan in 1985 to 541bn in 1995; in the same period their contribution to industrial production has halved, descending from 70% in 1985 to 35% in 1995.

A crisis which will have a very great impact on employment. If the much-feared reorganisation of state enterprises were to come to pass, we would witness an explosion of mass unemployment of Biblical proportions. The full restructuring programme would bring with it tens of millions of workers abandoned to their own devices. According to official data, the unemployment rate in urban areas in 2001 was 3%, while it is more realistic to talk of an unemployment level reaching 20%, to which it is necessary to add 30mn youth who appear on the labour market each year. In 1999 alone, 6.1mn workers were made redundant from state enterprises, and, in the coming years, another 12mn are to lose their own occupation. In China, unemployment means absolute poverty, seeing as there are none of the social buffers which in Europe, despite the continual cuts in the social state, partly attenuate, for a few months, the discomfort of finding oneself without work.

China's entry into the WTO

The integration of the Chinese economy into the ambit of the world one underwent a sudden acceleration in November 2001, thanks to the entry of the yellow giant into the World Trade Organization (WTO), the successor to GATT from 1995. Its negotiations for admission to the WTO were very long, because the resistance, especially of the US, blocked its entry as the 143rd member of the international body until the very last moment. In order to be admitted, the Beijing government had to make numerous concessions: primarily, it had to abolish state control over the prices of the majority of goods and services. After the elimination of state price control, over 90% of agricultural products and raw materials had their prices determined by the market. The inevitable consequence of such a decision was the immediate flaring up of inflation, which, despite official figures which insist it is under control, was almost 20% last year. The liberalisation of the prices of agricultural products was accompanied by the ending of state subsidies for agriculture, in fact benefiting the more industrialised countries which, in this way, were given the possibility of putting their most competitive products onto the Chinese market. According to the agreements on the entry into the WTO, state subsidies to Chinese agriculture are not allowed to exceed 8.5% of the value of production, while, in the advanced countries, these subsidies cannot exceed 5% of the value of agricultural production. For a transitional period, the Chinese state will maintain control over the prices of a few agricultural products such as cereals, vegetable oil, cotton and tobacco, and over products considered to be of strategic interest like natural gas, electricity, postal services and telecommunications.

If, from the point of view of agricultural production, China had to make considerable concessions to its international competition, the advantages it derived for industrial production also had to be considerable. Thanks to its entering the WTO, China will enjoy particular benefits for the exportation of industrial products whose fabrication requires the heavy use of manpower such as shoes, electronic products for the mass market and toys. In these very sectors, China has a large share of world production. For example, 83% of casual and women's clothes, 80% of women's shoes, 75% of sporting items, 40% of domestic linen and 24% of timepieces are produced in China. An enormous mass of goods with a low technological content which are competitive only and exclusively because of Chinese workers low wages. The effects of China's entry into the WTO are destined to profoundly transform its economic and social fabric, with heavy repercussions both on its employment and wage levels. With the end of state subsidies for agriculture, one can foresee that many of the roughly 350mn agricultural workers will be pushed by the liberalisation of prices and the consequent increase in the cost of living to migrate towards the more highly industrialised coastal regions. A process which has already partly begun but which, in the near future is destined to become amplified; millions of peasants expelled from their own land and constrained a migrate to the large cities to search for jobs, or to transfer to neighbouring countries. With the constant afflux of manpower searching for work, the pressure towards lowering the cost of labour-power will grow, contributing to lowering still further the wages in enterprises which produce for exportation. This is the motive for the transnational groups which have transferred their productive activity to China, where they can make use of lower wage levels. In Chinese factories where goods with famous international brands are produced, at the same level of professionalism and productivity, the mean wage of a Chinese worker is one fortieth of that received by a US worker.

Development dependent on external countries

The economic mechanism which until now has allowed China to develop with a very sustained rhythm, does not differ, apart from some aspects which must be given due consideration, much from that which led countries like Mexico, the Asian tigers and Argentina to bankrupcy. In fact, China too, like the two Latin American countries and those of South East Asian, had to attract from outside an enormous mass of capital in order to relaunch its own economy. The afflux of international capital caused an elevated external debt which, in the course of 2000 was equal to $148.8bn, a debt which was substantially under control thanks to the constant growth in exports and GNP. In this way, the ratio between external debt and GNP remained substantially constant and did not generate the insolvency panic among external investors which led to the failure of the above-mentioned countries. This is the first great difference which emerges between China and those other countries which ended up under the heavy blows of economic collapse. China, up until now, has been able to balance the afflux of foreign capital with the export of goods which are rendered competitive solely and exclusively thanks to the extremely low wages of Chinese workers. This mechanism suffered its first alarm bells during the crisis of the South East Asian countries in 1998, when a few months of economic recession in the area's countries was enough to drastically diminish the volume of Chinese exports.

In substance, behind the Chinese miracle there are hidden the same dangers of sudden collapse in production which led to the bankruptcy of entire countries and threw millions of proletarians into the deepest hunger. The constant increase of exports has up until now balanced the afflux of capital from abroad, but all this renders China a country which depends in a worrying manner on the trends in the international markets and, in particular, on Japan and the USA. Commerce with Japan and the US represents more than half of Chinese foreign trade. According to the most recent data issued by the Beijing government, in the course of 2001, Chinese external commerce reached the threshold of $600bn, above all thanks to the augmentation of exports to the US, which, in the last year, has become China's largest commercial partner.

In comparison with the countries which have fallen under the blows of the economic crisis, China differs not only because of its enormous territorial and demographic dimensions, but also by the fact that it possesses currency reserves among the largest in the world. Just in the last two years, China has increased its currency reserves by 6.5%, reaching, at the end of 2000, $156bn. The holding of a considerable mass of currency reserves helped the Beijing government in its decision to avoid devaluing its own currency during the Asian tigers' crisis and thus avoiding an interruption in the flow of capital from outside. From the point of view of macro-economic equilibrium, these currency reserves have, up until now, permitted China to repel all the speculative attacks on its own currency, feeding in this way the flow of direct investment from outside. At the same time, exports tend to become less competitive because of the relative revaluation of the Chinese currency with regard to the other currencies of the region. The contradictory nature of the mechanism means that if, on the one hand, a revaluation protects the afflux of capital, on the other, it renders exports less competitive, and thus the conditions are created for the closure of the virtuous circle on which is based economic development.


China's economic growth in the last ten years is the fruit of the particular conditions of crisis into which international capitalism is heading. Thanks to the liberalisation of the economy, to the opening of areas where international investors can invest without so many bureaucratic encumbrances and to the presence of manpower at very low cost, China has transformed itself into the most important area where the great transnational enterprises have "delocalised" their production. None of this means that China will follow the same lines of development as the advanced capitalist countries: in other words, in China we will not witness the birth of industry diffused across the country or the affirmation of broad strata of petty and medium bourgeois or workers' aristocracy, as happened in the ascendant phase of the cycle of accumulation in the US or in the countries of Western Europe. Even if growth may continual over the next few years, economic growth will involve only certain well-delimited geographical areas of the country (at present, the EEZ), and, at the same time, such growth can be maintained on condition that the already low workers' wages are further reduced to attract international investment to the country. An economic development which can only continue provided that millions of peasants expelled from the countryside go hungry and the Chinese proletariat is disposed to work more and more to receive less and less.

China is destined to play a role in the foreground of inter-imperialist relations for the near future, not just by the fact that it represents the principal reservoir of labour-power for world capitalism, but also by its enormous territorial and demographic dimensions. In this phase of international politics in which the US is disposed to play all its cards to the fullest extent, not least that of permanent war, merely to maintain its imperialist domination over the world, China, by its dimensions and its strategic geographical position, is destined to be at the centre of the world scene. Its growth of the last decade has caused it to reacquire a foreground role in the East Asian region and the whole Pacific. Its opposition to the Second Gulf War, the ever more tense relations with the US, the threat of shifting its currency reserves towards the euro, the rapprochement with Russia and the ex-Soviet republics of Central Asia and the ever closer political and commercial links with European countries allow us to glimpse China making a choice of its strategic camp in the imperialist conflict which is emerging on the horizon between the US and the axis constituted by France, Germany and Russia. In the present state of affairs, everything is subject to precipitous change, not just the axis of Paris, Berlin and Moscow, but, seeing the preconditions on which its present economic growth is based, China can pass in very little time from boom to an economic recession with catastrophic social consequences.

Lorenzo Procopio

(1) Maria Weber, _Il Miracolo Cinese: perché bisogno prendere la Cina sul serio.
(The Chinese Miracle: Why China Must Be Taken Seriously), Il Mulino 2003, p38.

(2) Ibid, p125.